Greetings, welcome to the Grupo Aeroportuario del Centro Norte, OMA, second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Emmanuel Camacho, Investor Relations Officer. Thank you, Emmanuel. You may begin.
Thank you, Paul. Good morning, everyone. Welcome to OMA's second quarter 2022 earnings conference call. Participating today are CEO Ricardo Dueñas and CFO Ruffo Pérez Pliego. Please be reminded that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our control. I will now turn the call over to Ricardo Dueñas for his opening remarks.
Thank you, Emmanuel. Good morning, everyone. We appreciate you joining us today. This morning, I will review our second quarter operational performance. First of all, I am pleased to inform that OMA delivered an outstanding performance during the second quarter of 2022, with all-time highs on our aeronautical revenues, non-aeronautical revenues, adjusted EBITDA, and adjusted EBITDA margin, which reached 77.7%. I will now briefly explain how we achieved these results. During the quarter, total passenger traffic reached 5.9 million, an increase of 30% versus the second quarter of 2021. As compared to the second quarter of 2019, total passenger traffic stood at 99%. Our passenger traffic performance remained sound and consistent with our expectations of an increased business activity and a better performance from the business travel segment.
During the quarter, the routes that contributed most to passenger traffic growth in volume terms versus the second quarter of 2021 were Monterrey on its Mexico City and Guadalajara routes, and Ciudad Juárez, Chihuahua, and Durango on their Mexico City route, all of them considered mainly business routes. As a result of the strong passenger traffic performance, as well as an increase in our aeronautical tariff earlier this year, aeronautical revenue grew 33% in the quarter versus the second quarter of 2021 to MXN 1.8 billion. On the commercial front, revenue increased 49% compared to the second quarter of 2021. Parking revenues increased 53% versus 2021, mainly due to higher penetration levels in Chihuahua and Monterrey as a result of higher business dynamism in those airports.
In addition, restaurants, retail, and car rentals also contributed most to growth, together with VIP lounges. Occupancy rate for commercial space in our terminal was 89% at the end of the quarter. In terms of commercial development and following up on our strategy to directly operate VIP lounges, during the quarter, we started construction of five new OMA Premium Lounges in the Ciudad Juárez, Durango, Reynosa, Tampico, and Zacatecas airports. In addition, our OMA lounges in Monterrey, Acapulco, Mazatlán, and San Luis Potosí airports are being remodeled. We expect to conclude this project in the first quarter of 2023. After conclusion, we will operate a total of 13 OMA lounges in 11 of our airports. Diversification revenues increased 43%, led by an outstanding performance in our hotel services at OMA Carga segments.
During the second quarter of 2022, occupancy rate at our Terminal two NH Collection hotel was 80%, while the Hilton Garden Inn hotel had an occupancy rate of 75%. These rates compared to 83% and 78% respectively in the second quarter of 2019, which reaffirms the strong performance of our hotel during the quarter. As a means of improving our guest experience in our Terminal two NH Collection hotel, during the quarter, we started a major remodeling project at the hotel, through which we reconditioned all its 287 rooms and we renew public areas, such as the entrance, lobby, and restaurant, among other spaces. The project is being carried out in phases in order to ensure the uninterrupted operations of the hotel, and it is expected to be finished by mid-2023.
OMA Carga continued delivering strong results as revenues increased 43% versus second quarter of 2021, mainly driven by revenues from handling, storage, and custody of ground and airport cargo, or air import cargo. The aforementioned aeronautical and non-aeronautical revenue performance, which hit all-time highs, along with our cost discipline, translated into a record MXN 1.8 billion adjusted EBITDA, an increase of 40% versus the second quarter of 2021, and a record high margin of 77.7%. On the capital expenditure front, total investment in the quarter, including MDP investments, major maintenance, and strategic investments, were MXN 784 million pesos. In June, a new 10,000 square meter section in the public area of Monterrey Terminal A began operation. This represents about 15% of the additional area contemplated for the whole Terminal A project.
During the quarter, we continued to work on the following major projects, the expansion and remodeling of Monterrey Airport Terminal A, the expansion and remodeling of the Ciudad Juárez terminal building, expansion and remodeling of the Culiacán terminal building, reconfiguration of the Mazatlán terminal building, platforms reconfiguration at the Monterrey Airport and modernization of the Zihuatanejo terminal building. With that, I will now turn the call over to Ruffo Pérez Pliego for more details on our financial highlights for the quarter.
Thank you, Ricardo. Good morning, everyone. I will briefly review our financial results, and then we will open the call for your questions. Turning to OMA's second quarter financial results. Aeronautical revenues increased 33% relative to the second quarter of 2021, driven by a 30% increase in passenger traffic and an increase in aeronautical tariffs implemented in the first quarter of the year. Non-aero revenues increased 40%. Of that, commercial revenues increased 49%, and the categories with the highest growth were parking, restaurants, retail, car rental, and VIP lounges. Car parking revenues increased 54% due to increased penetration in the Chihuahua and Monterrey airports. Restaurants, retail, and car rentals increased 61%, 75%, and 40% respectively, mainly due to higher revenue sharing and the opening of new commercial spaces.
VIP lounges increased 55%, due primarily to the recognition of revenues from a direct operation, as well as an increase in the number of users of the OMA lounges. Diversification activities increased 43%, reflecting strong OMA Carga and hotel divisions performance. Total aeronautical and non-aeronautical revenues reached MXN 2.4 billion in the quarter and grew 35% versus the second quarter of 2021. Construction revenues increased 30% as a result of the increased MBP investments. The cost of airport services and G&A expense increased 12% relative to the second quarter of 2021, mainly due to an increase of 16% in payroll expense, which results from the effects of the changes in labor regulations in Mexico that were implemented in the second half of 2021, and the incorporation of new business lines, mainly the direct operation of the OMA Premium Lounge.
Minor maintenance and basic services grew due to overall higher activity in our airports. Materials and supplies grew as well as we recorded the direct cost of operations of the OMA Premium Lounge. The major maintenance provision was MXN 298 million, compared to MXN 151 million in 2Q 2021. The increase is mainly attributable to the inflationary effect of the expected cost on future maintenance works as a result of increases in the Producer Price Index for the construction sector. OMA second quarter adjusted EBITDA was MXN 1.8 billion, and the adjusted EBITDA margin was 77.7%. Our financing expense was MXN 183 million, mainly due to higher interest expense as a result of additional debt issuance and the non-cash implied interest on the major maintenance provision.
Consolidated net income was MXN 928 million, an increase of 50% versus the second quarter of 2021. Turning to our cash position. Cash generated from operating activities in the second quarter amounted to MXN 1.1 billion, and cash at the end of the quarter stood at MXN 1.8 billion. During the quarter, we paid the first MXN 1.8 billion peso installment of the MXN 2.3 billion peso dividend approved in the 2022 shareholders meeting. The second and final installment of MXN 500 million was paid two days ago. At the end of the quarter, our total debt amounted to MXN 9.2 billion, and our net debt to adjusted EBITDA ratio stood at 1.2 times. This concludes our prepared remarks. Paul, please open the call for questions. Paul?
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is from Alejandro Zamacona with Credit Suisse. Please proceed with your question.
Thank you. Hi, Ricardo, Ruffo, and Emmanuel. Thank you for taking my questions. My first question is on the aeronautical tariffs. I recall that your strategy was to implement that 13% increase in real terms negotiated in the last MDP throughout two years. I'm wondering why when we look at this quarter on the revenue per workload units we haven't seen any significant increase. Even, it was lower than inflation. Any color on that topic would be appreciated.
Sure. Hi. Hi, Alejandro. This is Ruffo. As we reported, the aeronautical revenue per pax increased 2.8% versus the same quarter of last year. This is primarily the effect of mix among the different growth rates in our airports, as well as a lower contribution from international passengers. For example, in the second quarter of 2022, 11% of our passengers were international as compared to 14% in 2021. As you know, international passenger charges are higher than domestic ones. Also, we experienced growth from airports that have a lower than average TUA for OMA.
For example, versus the same quarter of last year, Monterrey grew 32%, Chihuahua grew 35%, and Tijuana grew 45%. These are airports that have a TUA that's lower than the average. We also had a smaller amount of TUA paying passengers. In this quarter, around 47.5% of our total passengers were TUA paying passengers, as compared to 48.5% in the same quarter of last year. The combined impact of all these three effects that I've mentioned results in a reduction of the average fee that you see quarter-over-quarter.
We did increase our TUAs earlier this year by around 12%, but because of the mix that I just explained, the impact that is reflected is around a 3% increase. Part of the mix and part is the inflation, the Producer Price Index has been much higher than we anticipated.
Okay. Got it. Thank you. My second question, if I may, on the hotel services. I know it's a small business for the company, but as Ricardo mentioned, we saw a higher occupancy rates. I'm just wondering, to what kind of traffic are these hotels exposed to, if it's business or VFR or leisure? My second question on that topic is, if we could expect a positive read-through to the potential recovery of the business segment. Thank you.
What was the last part of the question, Alejandro? Say, we can expect a positive what, sorry?
Yes. If we could see this strong recovery in the hotel services as a positive read-through to the potential recovery of the business segment.
Read-through. Okay. Yeah. I think, yes, it could be a read-through. Our hotels are mostly. We have two hotels. One is in the Mexico City International Airport. It's in Terminal two, which is dedicated to Aeroméxico. There's a big part of our customers are flight personnel, business passengers. In Monterrey, the same thing. In the Hilton, it's there is a lot of Hilton Honors program, which is mostly a business passenger segment. Yes, that is also a positive sign that business travel is returning. We're not only seeing that in our hotels, we're also seeing it in our routes.
If we look at the last couple of months, the growth in the business segment routes has been much larger than the one we have seen in VFR or touristic routes.
Okay, Ricardo. Thank you.
Thank you.
Thank you. Our next question is from Rodolfo Ramos with Bradesco BBI. Please proceed with your question.
Good morning, congrats on the results, gentlemen. A follow-up on Alejandro's question. If you can tell us where do you stand in terms of your maximum tariff execution? How far you are from reaching that level? That would be my first question.
Thank you, Rodolfo. We're anticipating to close this year with around 93% maximum tariff compliance. The reason being is that the Producer Price Index, excluding oil, which is the appropriate index to grow the real rates, it has been much larger, has been above around 2 percentage points above Consumer Price Index.
Okay. Thank you. If I may also, on this business travel routes that you discover, can you give us a little bit more color as to what do you expect in terms of the timeline? You know, it seems to me that in the most recent months, we have seen traffic a little bit on the sluggish side if we compare to other, you know, the leisure VFR destinations. So just wanted to see how you're thinking about, you know, this recovery, if you think it's more likely to be more pronounced towards year-end, or next year, and if you see any seasonality there. If you can talk specifically about Monterrey, Mexico, Guadalajara, and Saltillo.
I think that we experienced a very strong recovery in both April and May. June, as you mentioned, was kind of low-ish. We attribute that in part to the fifth wave of COVID, which even though it doesn't have critical effects on the health of people, it does result in cancellation of travel and room bookings. That defers a little bit the in-person contact of business meetings and conferences.
As this last wave recedes, we would expect a pickup in those routes, and we're seeing additional capacity being put to work, especially, for example, by Aeroméxico and some of the business or the critical business routes that we serve.
We monitor cases on a weekly basis. We detected that we already peaked last week or a couple of weeks ago. We already peaked in this wave, or the trend is also already coming down. We're starting to see airlines adding capacity in the future. There was also the issue of oil prices going up and prices of plane tickets slightly going up. That also had some impact.
Okay. Thank you. One last follow-up, if I may. How do you see the new or let's say the reconfiguration of Mexico City's airport impacting your network? I mean, do you see you know, if we were to see routes that connect smaller cities, perhaps within your network, being relocated to Felipe Ángeles or Toluca, do you see an impact there?
Well, we haven't seen any negative impact. Actually, the only routes that have been taken out have been moving operations to Santa Lucía, which are a very small fraction, less than 0.5%. What we see with that issue is we think it's a midterm opportunity as we believe that as we see more saturation in the Mexico City airport, that's gonna be a opportunity for airports like Monterrey, in which all the traffic that doesn't have to go to the Mexico City airport will have to go through other airports. I believe the airlines will start looking at a strategy to bypass the Mexico City airport. That's an opportunity for us.
Thank you.
Thank you. Our next question is from Stephen Trent with Citi. Please proceed with your question.
Good morning, gentlemen, and thanks very much for taking my question. Just very quickly, two for me. The first, if you could give some color on what happened with accounts receivable. Looks like that the receivables turnover slowed down, and I was wondering if you guys are having any conversations with airlines and you know, airlines paying on time. Just curious, and that's my first question. Thanks.
I mean, accounts receivable has been growing in line with our increase in revenues. We have a healthy receivable balance and as of now, no airline is in breach of their terms. We have a current accounts receivable portfolio.
Okay. Appreciate it. I saw, receivables looked like they turned over a little bit more slowly, but very helpful. I was just wondering as well, you know, can you refresh my memory if OMA is taking any interest in any foreign airport projects? I know there's been, you know, Barbados Airport that the auction may come at some point, the RFP at least. Any interest in that or, you know, are you guys just purely focusing on the domestic market? Thank you.
Thank you, Stephen. Now, we're constantly looking for opportunities abroad. So far we don't have anything concrete. Yes, we are participating in the Barbados, but as you mentioned, it has been placed on hold. Yes, we're always looking for opportunities where we can have a comparative advantage.
Okay, that's helpful. I'll leave it there. Thanks, guys.
Thank you.
Thank you. Our next question comes from Pablo Monsivais with Barclays. Please proceed with your question.
Hi, guys. Thanks for taking my question. I have a quick one on the commercial revenues per passenger or non-aeronautical revenues per passenger. It has increased significantly. Of course, in 2020 and 2021 it was mostly because of a lower passenger, but right now we're reaching to a more normalized passenger level, and yet you have a higher ratio of non-aero revenue per passenger. What should we incorporate there going forward? Do you think that it should be around high 90s, perhaps, getting to a MXN 100 per passenger? I don't know. If you can shed some light, it would be useful. Thank you.
Sure. I think that the ratio in this quarter has been obviously being driven by the very good growth of OMA Carga, which continues to deliver very solid results. The significant recoveries year-on-year in the hotel business. If you split out like commercial revenues per passenger and leave the other diversification activities as a separate activity, we would expect commercial revenues per pax for this year to be above MXN 45 per passenger. Obviously we should expect also continuous growth in OMA Carga for the remainder of the year at similar levels to what we are seeing now.
Hotels, we expect to reach close to the occupancy ratios that we had in 2019 towards the end of this year or so. That should have, like, more gradual recovery relative to the sharp recovery over previous quarters. I don't know if this helps your outlook.
Okay, thank you very much.
Thank you. Our next question comes from Hugo Becerra with GBM. Please proceed with your question.
Hello, good morning, and thanks for taking my question. Just wanna make sure I heard correctly about your maximum tariff execution. You're anticipating to close this year at 98% of the maximum level. Is that correct?
No, 93%. No, 93%.
93%.
Around 83%.
Okay, thanks so much. That will be all.
Thank you.
Thank you. Thank you. Our next question is from Gabriel Himelfarb with Scotiabank. Please proceed with your question.
Hi. Thanks for the call. Just a quick question about cost increase. Could you give us a bit of color on how the labor cost has affected SG&A since last year that the labor reform had a direct impact on contracts? Thanks.
Sure. I think it's primarily related to headcount increase. We have approximately 50 additional people that are in the new OMA Lounge division. We have around 130 people that were previously hired through third party companies that are now part of the company. You have roughly around 180 employees that were not in the same quarter of last year. Basically that explains the increase in payroll.
Okay. Just, can you give us a bit of color? We have seen that in European terminals there has been a lot of constrained capacity due to lack of labor. Have you seen this on your own terminal? Thank you.
No. I mean, we did make major adjustments over the past couple of years. We did become more efficient, but we are not experiencing the same type of problems that are being happening in other airports around the world. But we do have the right size of payroll to attend to the current level of operations that we have. It's not only airports, it's also airlines. The layoffs during the crisis in Mexico were not as large as in other countries in Europe, for example.
That's why you're seeing in Europe a big problem with shortage of labor because they did big layoffs, and rehire then has been more difficult than they expected, than they anticipated, so there has been a mismatch with supply and labor demand. That problem didn't get that large in Mexico, definitely not in airports. We didn't have layoffs, big layoffs and airlines in a shorter amount of international airports.
Okay, thank you. Congrats on the results.
Nice to meet you.
Thank you. Our next question is from Guilherme Mendes with JP Morgan. Please proceed with your question.
Morning, Ricardo , Ruffo, thanks for taking my question. Two questions here. The first one is a follow-up from the previous questions in terms of costs and things in terms of margins. Just wondering if the 77% margins we saw this quarter, do you guys see as sustainable going forward? The second question related to CapEx. We're seeing a lot of pressure in terms of inflation, not only on costs but on CapEx as well. What are the main measures, initiatives to kind of mitigate this pressure on CapEx going forward? Thank you.
For the first part, we think 76% for the rest of the year, around 76% will be manageable. In terms of cost, we have been doing a lot of economies. We have been finding a lot of efficiencies in CapEx deployment that are offsetting the increase in prices that we're seeing by the inflation.
Got it. Perfect. Just make it clear, the 76% is for the second half of the year or the average for the year?
The average for the year.
Perfect.
Yeah. Bear in mind that we have our collective bargaining agreement review in the Q4. We do not expect to have any tariff adjustments for the remaining of the year. That's why you'll see a slightly lower margin in the next few quarters than what we had in the second quarter.
Got it. Super clear. Thank you.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Our next question comes from Edson Murguia with SummaCap. Please proceed with your question.
Hi. Good morning. Thank you for taking my questions. Just to follow up on total operating costs and expenses, I'm just trying, like, understand, looking ahead the increase of 32%, it's only in this quarter or because of the dynamics of inflation and macroeconomic environment, it will be in the same range for the following quarters? That would be my first question. The second one is-
Sorry, Edson. Let me hold you there. We didn't hear the first part of the question. Can you be kind enough to repeat, please?
Oh, yes, for sure. It's a follow-up on that total operating costs and expenses. This quarter, the increase was 32%, 32.5% exactly. The question is, looking ahead for the following quarters, it will be in the same range because of the macroeconomic factors or it's only because right now in the second quarter was different from the historical data that you have for the company?
The number you are referring to 32.5% is after you include depreciation and the construction costs and the major maintenance provisions. All those costs are non-cash costs. We focus more on the cash cost effect, which in our case was around 15% increase, including the cost of hotel services. We would expect some adjustments towards the final quarter of the year. As I mentioned, we have some bargaining union contracts that will be negotiated in that quarter. Also, there is some inflationary impact on renewals of other services contracts that happen through the year.
I wouldn't expect a significant increase relative to the current levels of those cash costs that we are having as of today.
Okay. Thank you. The second question is regarding on international traffic. This quarter, we saw a decrease, but I was wondering if this decrease, it is likely decrease of course, is related to, the, general Mexico Category two airports on FAA or it's, related to one. If you can give us a little bit more color about, it will be helpful. Thank you.
Sure. On the second quarter of 2021, we did see a hike in international travel. We attribute in part to the vaccine tourism that primarily went from Monterrey to Texas to get vaccinated. That traffic this year was not there. Our main routes to San Antonio, Houston, out of Monterrey, did experience declines relative to the same quarter of last year. We see that most because of what happened in the second quarter of 2021, and we do not see it related to the Category two. In fact, there have been new route openings, international route openings, from U.S. carriers to our airports in recent months.
We are not experiencing a negative impact from the Category two at this time.
Okay. Thank you so much. Grazie, and congrats on your results.
Thank you. Thanks.
Thank you. Our next question is from Alan Macías with Bank of America. Please proceed with your question.
Hi. Good morning. Yeah, just one question on your dividend policy and what if you can share what we could expect for next year? Thank you.
We think around we paid MXN 2.3 billion as of this year. I think we will try to keep the same amount going forward.
Great. Thank you.
Thank you. There are no further questions at this time. I'd like to turn the call back over to Ricardo Dueñas, CEO, for any closing comments.
I want to thank all of you for participating in this call. Ruffo, Emmanuel, and I are always available to answer your questions, and we hope to see you soon. Thank you and have a good day.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.